A team from the International Monetary Fund (IMF), led by Mauricio Villafuerte, visited Tanzania from October 18�28, 2016 and held discussions with the authorities on the fifth review under the Policy Support Instrument (PSI) program that was approved on July 16, 2014.
At the end of the mission Mr. Villafuerte issued the following statement:
Preliminary data for the first half of 2016 indicate that economic growth was strong and that the projected growth rate of around 7 percent for the year as a whole remains within reach. However, there are downside risks to economic growth associated with the current tight stance of macroeconomic policies and the slow pace of implementation of public investment.
Inflation declined to 4.5 percent in September, below the target of 5 percent. The current account balance has improved significantly due to lower capital goods imports as externally-financed investment has slowed down and exports of gold and manufactured goods increased. The Bank of Tanzania's foreign exchange reserves have strengthened in recent months.
Implementation of the PSI-supported program has been satisfactory. Preliminary data indicate that most quantitative assessment criteria for end-June 2016 were met. The pace of implementing structural reforms has been slow, but has picked up recently.
Notable progress has been made in stepping up revenue collections and, based on data for the first quarter, the ambitious program target for the 2016/17 fiscal year is within reach. However, current spending has been lower than programmed. Together with the customarily slow pace of project implementation at the beginning of the fiscal year, this has led to a fiscal surplus in the first quarter. In addition, liquidity conditions have been tight contributing to upward pressure on borrowing costs in the economy.
The mission held discussions on how to address these macroeconomic challenges. In particular, it noted the importance of mobilizing external financing to step up the pace of planned capital spending. Tanzania is at low risk of external debt distress and has room to borrow externally on concessional and nonconcessional terms to meet its financing needs. The mission commended the authorities' efforts to improve the efficiency of spending and noted that it should not compromise the delivery of essential services. It also recommended continued steps to ease liquidity conditions in the economy. These could include liberalizing further the capital account in line with commitments under the East African Monetary Union Protocol; acquiring a sovereign credit rating to expand Tanzania's opportunities to borrow abroad; and widening the range of monetary policy tools.
The mission welcomed the adoption of the second Five-Year Development Plan. The mission noted that it was essential to improve the dialogue with the private sector and accelerate reforms to bolster the business environment. The mission also welcomed the steps taken to clear existing domestic arrears and prevent their further incurrence.
Discussions will continue in the coming weeks to reach final understandings on an economic policy framework that can underpin the completion of the fifth review under the PSI. The IMF Executive Board is tentatively expected to discuss the review in early-2017.
The mission met with Minister Philip I. Mpango, Governor Benno Ndulu, Permanent Secretary Doto M. James, and other senior officials of the government and the Bank of Tanzania.
The IMF team is appreciative of the constructive and open policy dialogue and thanks the authorities for their hospitality during the visit.rdquo;
The PSI is an instrument of the IMF designed for countries that do not need balance of payments financial support. The PSI helps countries design effective economic programs that, once approved by the IMF#39;s Executive Board, signal to donors, multilateral development banks, and markets the Fund#39;s endorsement of a member#39;s policies (see http://www.imf.org/external/np/exr/facts/psi.htm). Details on Tanzania's PSI program are available at www.imf.org/tanzania.
Source: International Monetary Fund (IMF).